Alumni Focus

Healthy Skepticism & Enormous Generosity

Norman Payson, M.D.

When Norman Payson, MD, graduated from Dartmouth Medical School (DMS) in 1973—as a member of the first graduating class of the school's MD program—he received more than a first-rate medical education. "I came away with a healthy sense of skepticism about the way health care was being delivered," says Payson. "Among my mentors at Dartmouth, there was a strong feeling that we could do better, that there were ways to provide higher quality, more affordable, and more responsive care to patients."

It was a philosophy that would serve Payson well and help drive him to great success, first as a practicing physician and then as a business leader in the managed healthcare industry. "I owe a great deal to Dartmouth," says the New Jersey native who came to DMS on scholarship after completing an undergraduate degree at MIT. "It's a very special place, and I'm delighted to be able to give back to help others in the same way that I was helped."

Preparing Tomorrow's Leaders
Dr. Payson recently gave a $2 million gift to DMS, half of which will be used to provide scholarships for NH students to attend DMS. The second million will be used to help sponsor a select group of DMS students who, in addition to their medical education, would like to pursue an MBA at the Tuck School of Business at Dartmouth.

"Historically, there's been a 'disconnect' between medical science and what really happens in the marketplace," Payson explains. "Physicians don't necessarily understand the marketing of health insurance, what the economics of drug development are, or how hospital economics work. Business students, on the other hand, are well-groomed to understand markets and finance, but they don't have the healthcare background. For those who want to affect change in today's highly complex healthcare system, I think there's a distinct advantage in developing competencies in both disciplines."

"So, what I hope to do with the second part of the gift is provide assistance and encouragement to those students who are interested in playing a leading role in changing and improving how health care is delivered in this country," he says. "It's very expensive to go to medical school or business school, and to do both is really a hardship. Given that we have these two great schools here, in DMS and Tuck, I want to help reduce that hardship and create a more formal educational pathway for our next generation of leaders."

Staying Connected To Dartmouth
Throughout his career, Payson has maintained close ties with DMS. He has been a member of the Board of Overseers since 2001. He teaches healthcare financing at the Tuck School of Business and the Center for Evaluative Clinical Sciences (CECS), and is part of a workgroup—sponsored by Dr. Paul Batalden at CECS—that is focused on reducing costs within the healthcare system. Payson also participated in a public outcomes report project, using the Internet, which compared outcomes at DHMC with national outcomes data.

"The project was an example of DHMC being innovative and doing the right thing," he says. "It was wonderful to see our own institution take the initiative to voluntarily create the database and share the data. Over the next five to ten years, all hospitals will have to follow our lead and report their outcomes if they want to receive the maximum levels of reimbursements from government agencies such as Medicare."

From Doctor To Businesssman
Payson's own exposure to the business side of health care came about quite by happenstance. After completing his residency at Case Western Reserve in Cleveland and the Indian Health Service in Arizona, he settled in California as a general practitioner for several years. "I enjoyed being a physician and caring for patients, but I was restless and unsure about whether I wanted to stay in family practice or perhaps focus in a subspecialty like cardiology or pulmonary medicine," he says.

During that time, Payson got involved in leading several physician committees which included chairing a hospital pharmacy committee, becoming quality assurance director for a local HMO affiliate, and chairing a utilization review committee. "I got to see first-hand how wasteful and dysfunctional the traditional system was," he recalls. "For example, you'd give a child a vaccination, but it wouldn't be covered by her family's insurance plan. At the same time, you'd see all of these patients who weren't really sick get admitted just so their insurance would pay for the test they needed."

When he was asked to temporarily take on the role of CEO of his group practice—which had grown to include 120 doctors—and be medical director for the burgeoning HMO, Payson accepted. "The more involved I got in the business side of things, the more intrigued I got," he explains. "At the time, the financial results of the HMO were really tied to appropriate hospital use. So, the basic business proposition was if people were unnecessarily in the hospital and you could avoid that, you could more afford to pay for immunizations, prenatal care, and medications that normally were not covered by insurance plans." Before long, Payson was devoting most of his time and energy to being a chief executive.

Putting Down Roots
At his wife's urging, Payson decided to move his family— which now included two young daughters—from Los Angeles to New Hampshire. In 1985, Payson recognized a golden opportunity. "A group of Concord-area physicians were trying to develop their own HMO to compete with other group practices and health plans," he says. "They needed someone who could help organize and run things, who knew the HMO business, and who understood physicians— I 'fit the mold.' So, we formed an HMO-management company called Healthsource. We started in Concord, and were quickly able to mobilize the doctors in the surrounding communities and were ultimately able to build a statewide network."

Under Payson's leadership, the company grew rapidly, establishing similar networks in Maine and the Carolinas. "In the mid-to-late 80s, the markets were changing quickly around the country as employers and consumers embraced HMOs and managed care plans as viable alternatives to traditional insurance plans,'" explains Payson. "Still, through that period, there were many HMOs that experienced financial difficulties. So, we developed a side specialty of also doing 'turnarounds.'"

By 1989, Healthsource was generating revenues in excess of $40 million. "At that point, we decided to take the company public," says Payson. "With proceeds from the public offering, we were able to do a number of acquisitions. We enjoyed continued growth for several more years, eventually expanding to 15 states. By the time we sold the company to Cigna in 1997, our revenues had reached $2.2 billion."

A Major Turnaround
Less than a year after the sale of Healthsource, Payson accepted an offer from an investment group that needed a partner and chief executive to help rescue Oxford Health Plans from financial insolvency. Though still a dominant presence in the metropolitan New York area, Oxford had financially collapsed due in large part to faulty claims and information systems. One of Payson's main challenges was addressing the hostility that had developed between the company and its network of more than 50,000 doctors. "Many of them threatened to leave because they weren't receiving payment for their services," he recalls. "Fortunately, I was able to convince them to stay."

"The first year was the hardest," adds Payson. "We were losing money so rapidly—about $50 million per month during the first several months I was CEO—it was a real struggle just to stabilize things. Even though Oxford's information system was impaired and the information it was generating was inaccurate, I understood the healthcare economics intimately and knew after so many years in the business where the problems were and how to address them."

Payson stayed at the helm of Oxford until 2002. "We had a complete financial reversal," he says. "When the company was sold this year, the sale price was about ten times what the stock price was at its low point in 1998, so it worked out very well for our shareholders."

Contributions Across Systems
Since leaving Oxford, Payson has devoted his considerable energies to a wide variety of activities—from doing charitable work to traveling internationally to study the healthcare systems in China and Sweden to mentoring medical students. He has also kept a promise that he made to himself many years ago. "I finally got relicensed as a physician," says Payson. "I've been doing some charity drug development work in Africa—to help a non-profit biotech company develop a more effective vaccine for TB—and want to be prepared to practice medicine if I need to."

"I think clearly there's an opportunity to drive things here at Dartmouth-Hitchcock Medical Center, to be a model for how health care can be delivered better," adds Payson. "And the glue is CECS which has become a national leader in applying sound research to improve health care for the sake of patients and providers. I'm committed to do what I can to help."

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